Like most denizens of the legal profession, we were somehow both completely shocked and at the same time not at all shocked by the recent reporting on alleged bill-padding at the global law firm DLA Piper.
The firm insists that such wrongdoing doesn’t exist, at least not within its mahoganied walls: “While we will make no effort to defend the foolish emails generated by the lawyers involved in this matter, we will defend vigorously the firm’s track record of delivering high-quality legal services at a fair price.”
Dismissals aside, the fact is that featherbedding—the nuanced art of throwing multiple and improperly resourced bodies at clients in the interest of maximizing revenue—is alive and well. It’s distasteful but not at all surprising. What leads top-end global law firms to engage in this type of behaviour?
On the one hand, how could the lawyers involved so blatantly work in opposition to their own clients’ interests? But on the other hand, given the framework of incentives and structures within which they operate, how could they not?
he litany of perverse incentives in the law firm business model is all too familiar at this point, but let’s briefly enumerate the problems and how they result in the “churn that bill, baby!” mentality. And then let’s talk about how we get out of this mess.
First of all, law firms bill hourly for the most part, and that’s just indefensible in this day and age. Any economist, or really any businessperson, will stop you right there and point out that your incentive structure is inherently adversarial and zero-sum. Bad behaviour is going to result. Why on Earth is anyone still doing this?
Look a little deeper, and the structural problems get worse. Law firms are run by partners who have worked for decades to reap the rewards at the top of the pyramid. Any client-friendly change or investment in efficiency during their brief tenure at the top is self-destructive. Younger lawyers may want change, but by the time they’re in a position to do anything about it, they’d be crazy to follow through.
Beneath even the institutional structure (which is set up badly for clients) and the billing approach (which is even worse) is another level of perversion in the prevailing mindset of Big Law. Of all the outrageous statements in the DLA emails, the one most likely to be overlooked was the one made when a partner bemoaned the inefficient use of associates: “Perhaps if we paid more money, we’d have skilled associates.”
This is a quintessential misdiagnosis of a problem, and I submit that the same mistake would have been made by a broad cross section of big firm leaders.
The problem is not that the associates are unskilled. In fact, they’re among the best educated and hardest working professionals in the economy. The problem is that they tend to operate in a professional environment that has simply ignored all of the investment in technology, tool creation, and efficient workflow that have made the rest of the economy more productive.
Partners with little management training deploy expensive associates in a haphazard manner against ill-defined tasks within an incentive structure that motivates waste and anti-client behaviour. Giving those associates another raise is definitely not the solution.
The solution is, finally, to fix the game, rather than waiting for the players to behave differently. It doesn’t matter if law firm attorneys are paid more, or overseen more carefully by clients, or badgered by the press. To solve this problem, the focus has to be on how legal work gets done, not simply on who is doing it, no matter their ethics.
The legal industry must rid itself of its vestigial attachment to hourly billing and pyramid incentives, and its aversion to technology investment. Law firms, which benefit from deep client relationships and access to great talent, should be completely rethinking their business models to mimic the best-of-breed companies that have evolved in almost every other professional services industry. This will require financial sacrifice on the part of many law firm leaders, so why would they do it? Simple. Because the alternative is worse.
General Counsels, at least the enlightened ones, are fed up. Mark Chandler, the general counsel of Cisco, has called law firms “the last vestige of the medieval guild system to survive in the 21st century.” Clorox’s general counsel, Laura Stein, said “the law firm’s leverage-attrition model isn’t working, and corporate clients, and therefore shareholders, are paying for it.”
The calls for change from general counsels must be answered if for no other reason than they, and they alone, control the hundreds of billions of dollars spent on corporate legal services annually. And because, for the very first time, that’s a muscle they are willing to flex.
Indeed, if we’re going to see real change, then clients must allocate their business accordingly, as many are starting to do. How does that saying go? Fool me for 100 years, shame on you. But fool me for another 100 years . . .
This article is by Mark Harris, the chief executive of Axiom, a 1,000-person new-model legal services firm.
The Article first appeared in Forbes magazine Here
The firm insists that such wrongdoing doesn’t exist, at least not within its mahoganied walls: “While we will make no effort to defend the foolish emails generated by the lawyers involved in this matter, we will defend vigorously the firm’s track record of delivering high-quality legal services at a fair price.”
Dismissals aside, the fact is that featherbedding—the nuanced art of throwing multiple and improperly resourced bodies at clients in the interest of maximizing revenue—is alive and well. It’s distasteful but not at all surprising. What leads top-end global law firms to engage in this type of behaviour?
On the one hand, how could the lawyers involved so blatantly work in opposition to their own clients’ interests? But on the other hand, given the framework of incentives and structures within which they operate, how could they not?
he litany of perverse incentives in the law firm business model is all too familiar at this point, but let’s briefly enumerate the problems and how they result in the “churn that bill, baby!” mentality. And then let’s talk about how we get out of this mess.
First of all, law firms bill hourly for the most part, and that’s just indefensible in this day and age. Any economist, or really any businessperson, will stop you right there and point out that your incentive structure is inherently adversarial and zero-sum. Bad behaviour is going to result. Why on Earth is anyone still doing this?
Look a little deeper, and the structural problems get worse. Law firms are run by partners who have worked for decades to reap the rewards at the top of the pyramid. Any client-friendly change or investment in efficiency during their brief tenure at the top is self-destructive. Younger lawyers may want change, but by the time they’re in a position to do anything about it, they’d be crazy to follow through.
Beneath even the institutional structure (which is set up badly for clients) and the billing approach (which is even worse) is another level of perversion in the prevailing mindset of Big Law. Of all the outrageous statements in the DLA emails, the one most likely to be overlooked was the one made when a partner bemoaned the inefficient use of associates: “Perhaps if we paid more money, we’d have skilled associates.”
This is a quintessential misdiagnosis of a problem, and I submit that the same mistake would have been made by a broad cross section of big firm leaders.
The problem is not that the associates are unskilled. In fact, they’re among the best educated and hardest working professionals in the economy. The problem is that they tend to operate in a professional environment that has simply ignored all of the investment in technology, tool creation, and efficient workflow that have made the rest of the economy more productive.
Partners with little management training deploy expensive associates in a haphazard manner against ill-defined tasks within an incentive structure that motivates waste and anti-client behaviour. Giving those associates another raise is definitely not the solution.
The solution is, finally, to fix the game, rather than waiting for the players to behave differently. It doesn’t matter if law firm attorneys are paid more, or overseen more carefully by clients, or badgered by the press. To solve this problem, the focus has to be on how legal work gets done, not simply on who is doing it, no matter their ethics.
The legal industry must rid itself of its vestigial attachment to hourly billing and pyramid incentives, and its aversion to technology investment. Law firms, which benefit from deep client relationships and access to great talent, should be completely rethinking their business models to mimic the best-of-breed companies that have evolved in almost every other professional services industry. This will require financial sacrifice on the part of many law firm leaders, so why would they do it? Simple. Because the alternative is worse.
General Counsels, at least the enlightened ones, are fed up. Mark Chandler, the general counsel of Cisco, has called law firms “the last vestige of the medieval guild system to survive in the 21st century.” Clorox’s general counsel, Laura Stein, said “the law firm’s leverage-attrition model isn’t working, and corporate clients, and therefore shareholders, are paying for it.”
The calls for change from general counsels must be answered if for no other reason than they, and they alone, control the hundreds of billions of dollars spent on corporate legal services annually. And because, for the very first time, that’s a muscle they are willing to flex.
Indeed, if we’re going to see real change, then clients must allocate their business accordingly, as many are starting to do. How does that saying go? Fool me for 100 years, shame on you. But fool me for another 100 years . . .
This article is by Mark Harris, the chief executive of Axiom, a 1,000-person new-model legal services firm.
The Article first appeared in Forbes magazine Here
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